If you’re like most Americans, the coming months are going to mean making some hard financial choices. Pay the rent, or pay off high-interest credit card bills? What about medical bills? Food?
Over 6.6 million Americans applied for unemployment last week, setting an all-time record. Many have been laid off, furloughed, or had their hours reduced. Some who are still able to work are having their pay cut significantly. And even if you’re one of the lucky ones who haven’t had your employment affected by the coronavirus pandemic, your investments, including your 401(k), have likely taken a terrifying hit.
This is all to say that many Americans, along with the rest of the globe, are trying to make ends meet and coming up short. Fortune spoke with personal finance expert Bola Sokunbi of Clever Girl Finance and Rod Griffin, senior director of customer education and advocacy at Experian, to help understand the best strategies for anyone who is struggling.
What if I can’t afford to pay my bills?
Both experts agreed that you need to focus on the essentials first. “Look at paying the bills that will keep a roof over your head, food on the table, clothes on your back, and keep you healthy,” Griffin says. “Those are the key issues right now.”
Communicate with all of the companies to which you owe money and explain your situation. Often, and particularly in a worldwide crisis such as this, they’ll help you figure out a plan that works for you. You can also work with the companies you owe to create a plan to pay off more of your debt once you have more money coming in again.
“A big mistake people make is assuming that their landlord, lenders, and creditors know they’re going through hard times,” Sokunbi says. “But you have to communicate.”
If you can’t pay a few bills, that isn’t the end of the world, she says. The entire globe is struggling with an economic downturn of historic proportions. You are not alone, and this is not your fault. “Your credit score is important, but life is happening now,” says Sokunbi. “All of this can be rebuilt.”
Will not paying rent and other bills hurt my credit score?
The short answer: maybe.
Credit cards, loans (including student debt and car payments), and mortgages are reported to credit bureaus, and thus show up on your credit report. So these are the bills that will most likely have the quickest effect on your score if left unpaid. However, governments at the state and federal level, along with several companies, are reducing or suspending payments of mortgages and certain loans.
Griffin encourages people to get their credit reports for a comprehensive look at what debts they have and what they owe to whom. Many of your monthly bills like rent, phone plans, electricity, and childcare won’t be on this report, because they are not typically reported to the credit bureaus.
However, if you don’t pay those bills, creditors can send your case to debt collectors, who will most likely report that delinquency. Then you will end up with a negative mark on your credit report.
But if you communicate with your lenders and creditors, they will often work with you to set up a plan and are far less likely to report you to debt collection agencies. You can also negotiate with them to be granted forbearance or deferment, types of temporary postponement of payments without negative credit affects, Griffin said.
He also noted that an increase in credit utilization is expected during the COVID-19 crisis as people use their credit cards to get through the tough time. That will make credit scores drop, but he said not to worry.
“Once we’re back on our feet, your scores are going to improve again,” he said. “It’s a credit history, but you can control it, you can change it. It will go up and down, and that’s okay.”
Do I have to pay my rent and/or mortgage this month?
Given how swiftly the coronavirus pandemic has swept the globe, you might find some relief when it comes to keeping a roof over your head.
As Fortune has reported, mortgage giants Fannie Mae and Freddie Mac both have ordered lenders to be more flexible with borrowers, reducing or suspending payments for up to 12 months. That action alone covers half of the country’s home loans.
Other lenders are making accommodations such as offering “forbearance,” which allows borrowers to delay their payments (but could also mean that they owe those payments as a lump sum at the end of the agreed-upon period). Experts say a better option is mortgage modification, which allows you to skip payments for a set period of time and repay the lender in a variety of ways.
What happens if I don’t pay my utilities?
Normally, utilities providers would shut off your water, lights, heat, or phone service if the bill goes unpaid. That could still happen, but in an unprecedented time of crisis such as the coronavirus pandemic, many governments and companies are freezing shutoffs.
Again, Griffin says the best thing you can do is communicate with your providers that you are unable to pay the bill in full. That communication will curry good favor and work toward a solution that benefits both parties.
When will I get my coronavirus relief check?
The coronavirus relief bill passed by the president and Congress includes $2 trillion worth of stimulus for the American economy, including $1200 checks that will be issued to qualifying individuals.
Experts believe this will take longer than Treasury Secretary Steven Mnuchin’s optimistic two-to-three-week timeline. Erica York of the Tax Foundation told Fortune that the fastest the federal government has ever issued stimulus checks was six weeks. With that in mind, expect your stimulus check to arrive sometime in May or later.
To get your stimulus check as quickly as possible, make sure the IRS has your direct deposit information. To do that, you can check if your latest tax return included it, or if you haven’t yet submitted your 2019 taxes, make sure to include your bank information for direct deposit when you do. That way, the money will be deposited rather than mailed in the form of a check.
How can I apply for unemployment benefits?
If you’ve been laid off, furloughed, or even, in some cases, had your hours reduced, you can apply for unemployment benefits from your state and the federal government. The CARES (Coronavirus Aid, Relief, and Economic Security) Act even allocates extra unemployment benefits for those that have lost their work due to COVID-19. This includes part-time employees, freelancers, independent contractors, gig workers, and the self-employed.
These benefits should be quickly paid out, as the CARES Act incentivizes states to move quickly.
On top of unemployment and individual stimulus checks, there are many government and nonprofit resources you can utilize for help paying your bills this month and in the coming months.
Both Griffin and Sokunbi stressed that inability to pay bills right now is not a personal failing. “My best advice right now is there’s a lot that’s out of our control,” Sokunbi says. “Do what you can and then disconnect. Focus on your family, focus on self care. We just have to wait this out.”